Income Tax Appellate Tribunal - Ahmedabad
R.S. Industries, Nani Daman vs Department Of Income Tax on 28 February, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH -A
BEFORE S/SHRI BHAVNESH JUDICIAL MEMBER
AND SAINI N. S. SAINI, ACCOUNTANT MEMBER
ITA. No.2089 /AHD/2008
Assessment Year :2005-06
Income Tax Officer, Vs. M/s. R. S. Industries,
Vapi-Ward-4, 2nd Floor, Plot No.78/82,
Dr. Jeevanji Hotel Building, Silver Industrial Estate,
Devka Road, Kathiria, Bhimpore,
Nani Daman. Nani Daman.
APPELLANT RESPONDENT.
PAN No: AAHFR 7724 F
Appellant by : Shri R. K. Dhanesta, D.R.
Respondent by : Shri S.N.L. Agarwala.
ORDER
PER SHRI N.S. SAINI ACCOUNTANT MEMBER.
This is an appeal filed by Revenue against the order of the Learned C.I.T.(A)-Valsad, dated 28-2-2008 by taking the following ground of appeal.
"1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred to allow the deduction u/s. 80IB of the I. T. Act which is a technical disallowance does not represent profit from manufacturing activity on disallowance of `.31,19,768/- under section 40(a) (ia) of the I. T. Act."
2. The brief facts of the case are that the assessee is in the business of manufacturing of corrugated boxes in the Union Territory of Daman and Diu a notified backward area. During the year under consideration the assessee claimed deduction under section 80IB of `.6,03,096/- being the profit derived from the eligible Industrial Undertaking. The Assessing Officer disallowed deduction for freight charges `.1,66,742/- and 2 ITA.2089/Ahd/2008 Assessment Year 2005-06 `.16,61,129/- totaling to `.18,27,871/- and deduction for printing charges of `.12,91,897/- on the ground that the assessee has failed to deduct ITDS from the said payments. In this way he disallowed total expenses of `.31,19,768/-. While allowing deduction under section 80IB to the assessee the Assessing Officer did not include this amount of `.31,19,768/- in the eligible profit from the Industrial Undertaking.
3. Being aggrieved by this order of the Assessing Officer the assessee filed appeal before the Learned Commissioner of Income Tax (Appeals). The assessee contended that that expenses of `.31,19,768/- disallowed by the Assessing Officer was a part of the profit derived from the Industrial Undertaking and was accordingly eligible for deduction under section 80IB.
4. The Commissioner of Income Tax (Appeals) after considering the submissions of the assessee held that after disallowing expenses of `.31,19,768/- debited in the Profit and Loss Account, the profit derived from Industrial Undertaking was increased to that extent and accordingly found merit in the contention of the assessee. He held that the contention of the Assessing Officer that disallowance made on technical ground of non deduction of TDS cannot be the profit derived from the eligible unit was not acceptable and accordingly directed the Assessing Officer to treat `.31,19,768/- as entitled for deduction under section 80IB of the Act.
5. Being aggrieved by this order of the Commissioner of Income Tax (Appeals), the Revenue is in appeal before us by taking the above ground of appeal.
6. After hearing both the parties we find that the issue to be decided by us is that whether the expenditure incurred by the assessee during the course of the business of the eligible industrial undertaking which was disallowed for non deduction of ITDS by the assessee would increase the profit from the eligible unit of the assessee for computing deduction under section 80IB or not. We find that a similar issue had come up before this Tribunal in the case of Chirag Plast vs. ITO Vapi Ward-4,Nani Daman for the assessment year 2005-06 in ITA No.2196/AHD/2009 and the Tribunal 3 ITA.2089/Ahd/2008 Assessment Year 2005-06 vide order dated 18-9-2009 allowed the appeal of the assessee holding that any disallowance of business expenditure of the eligible unit will logically result in enhancement of deduction allowable under section 80IB of the Act. The relevant observation of the Tribunal reads as under:-
"We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. In the instant case, it is not in dispute that the assessee is eligible for deduction of 100% of the profits and gains derived from its industrial undertaking. The Learned Assessing Officer found that a sum of `.1,25,073/- is not allowable as business expenditure of the year under consideration because of the provisions of section 40(a)(ia) are that deduction in respect of this business expenditure will be allowed to the assessee in the subsequent year when TDS in respect of this expenditure is deposited by the assessee. However, the Learned Assessing Officer has treated this amount of disallowable expenditure as income from other sources and thereby not allowed deduction under section 80IB in respect of that amount. The Learned Commissioner of Income Tax (Appeals) also confirmed the above action of the Learned Assessing Officer on the ground that allowance of deduction under section 80IB in the year will tantamount to double deduction to the assessee. We find that the undisputed facts of the case are that business expenditure of eligible unit stands disallow in the year under consideration due to application of provisions of section 40(a)(ia). Thus, in other words, the said amount is deemed as expenditure not incurred by the assessee for computing its business income. Thus, as the expenditure of eligible unit stands disallowed consequently the same results in increase of the profit of the eligible unit. The deduction under section 80IB is allowable in respect of profits and gains derived from the industrial undertaking. Such profits and gains are to be computed in accordance with the provisions of section 28 to 44AC which includes section 40(a)(ia) also. Therefore, any disallowance of business expenditure of the eligible unit will logically result in enhancement of deduction allowable under section 80IB of the Act. The fear expressed by the Learned Commissioner of Income Tax(Appeals) in our considered opinion is unfounded and baseless. During the year as the expenditure of the eligible business is disallowed the assessee's business income derived from the eligible business of the industrial undertaking stands at increased figure and therefore, the assessee will be eligible for deduction of enhanced amount under section 80IB of the Act. However, in the subsequent year in which TDS is paid by
4 ITA.2089/Ahd/2008 Assessment Year 2005-06 the assessee, the expenditure will be allowed as deduction from the eligible profits of the subsequent year and thereby the eligible profit of the industrial undertaking will be reduced in the subsequent year and consequently the assessee will be eligible for deduction under section 80IB at the reduced amount only. Thus, there cannot be a double deduction to the assessee. In view of the above, we set aside the orders of the lower authorities and direct the Learned Assessing Officer to allow deduction under section 80IB in respect of entire profit derived from industrial undertaking, after taking into consideration the provisions under section 40(a)(ia). Thus, the ground of appeal of assessee is allowed."
6. In the present appeal, before us the undisputed facts of the case are that the expenditure for freight charges and printing charges totaling to `. 31,19,768/- disallowed by the Assessing Officer for non deduction of TDS by invoking the provisions of section 40(a)(ia) was incurred by the assessee in connection with the business of the eligible unit. Therefore, the above quoted decision of the Tribunal is squarely applicable to the facts of the case of the assessee. Respectfully following the same we confirm the order of the Commissioner of Income Tax (Appeals) and dismiss the appeal of the Revenue.
7. In the result, the appeal of the Revenue is dismissed.
Order signed, dated and pronounced in the Court on 22nd day of October, 2010.
Sd/- Sd/- (BHAVNESH SAINI) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER.
Ahmedabad: On this 22nd day of October, 2010.
Compiled and prepared by : Patki.
Copy of the order forwarded to :-
1. The Appellant.
2. The Respondent
3. The CIT concerned.
4. The Ld. CIT(A)-Valsad.
5. The D. R. Ahmedabad Bench
6. The Guard file.
BY ORDER.
(Dy./Assistant Registrar), ITAT,Ahmedabad.
5 ITA.2089/Ahd/2008
Assessment Year 2005-06
Date. Initials.
1. Drafted dictated on 20-10-2010
2. Draft placed before Authority. 20-10-2010
3. Draft proposed & placed
before second member. 20-10-2010
4. Draft discussed/approved
By second member. 21-10-2010
5. Approved Draft comes to P.S. 22-10-2010
6. Kept for pronouncement on 22-10-2010
7. File sent to the Bench clerk. 22-10-2010
8. Date on which file goes to AR
9. Date of dispatch of Order.